*This article was produced by the team at Signal Risk



On 04 November, talks between the government and the International Monetary Fund (IMF) began over Zambia’s sought after Extended Credit Facility (ECF). Engagements on the facility follow earlier &#8220;technical&#8221; discussions on Zambia’s fiscal policy which concluded on 01 October.



Great expectations



The talks come amid renewed confidence by both parties that a deal can be reached in the near future. In a webinar on 02 November, a bullish finance minister Situmbeko Musokotwane disclosed Zambia’s envisaged timeline with respect to the IMF deal and debt restructuring under the G20’s Common Framework. As per Musokotwane and other officials from his ministry, Zambia hopes to reach a staff-level or preliminary agreement with the IMF on a financing programme by the end of November, followed by a final approval of the programme by the IMF’s board by the second quarter of 2022. Thereafter, the government will proceed with debt restructuring, with a view to finalising an agreement with creditors by the third quarter of 2022.



Equally noteworthy, finance permanent secretary Mukuli Chikuba reassured investors on the same day that no creditors will be given preferential treatment – including domestic and Chinese lenders – easing long-standing concerns among bondholders and other multilateral and bilateral stakeholders.



Zambia’s bullishness was echoed by the IMF’s chief, Kristina Georgieva. Speaking on the sidelines of the COP26 summit in Glasgow, Scotland, on 03 November, Georgieva stated that she was “very optimistic” about reaching an agreement with Zambia. Underlying her optimism was Zambia’s “fantastic work in terms of debt transparency and engaging with creditors”. Nevertheless, the IMF official did stress that “we are not quite there yet” and that “more work was needed on financial assurances”.



Betting on the budget



Perceptions that Zambia has gone from kicking the proverbial can to picking it up are rooted in a directional shift by the administration of President Hakainde Hichilema. This was recently exemplified by the 2022 budget that was presented to parliament on 29 October by Musokotwane.



Central to the acceleration in growth and fiscal stabilisation forecasted by Musokotwane’s are cyclical factors and policy adjustments that the government has pledged to undertake. Key sectors such as tourism, retail, construction, agriculture and mining are set to rebound in the coming year following a coronavirus-induced slump and the reduction of constraints on internal and external economic activity.



This “organic” recovery will be supported by two crucial tax reforms: a reduction in the corporate income tax from 35 to 30 percent, and the reintroduction of the deductibility of mineral royalties from corporate income tax. The latter change has been long sought after by stakeholders in Zambia’s mainstay mining sector, which have complained of effective double taxation under previous regulations.



Finally, Musokotwane has pledged to restructure government subsidies – particularly in relation to fuel – however, a clear plan has yet to be presented. Nevertheless, the finance minister did note that factored into the budget and Zambia’s borrowing requirements is an impending USD 750 million Eurobond principal payment due in September.



The reactions



Unsurprisingly, reactions to the budget have been positive. In the financial markets, Zambia’s 2024 Eurobonds increased by 0.3 percent in price by the close of the day’s trade on 29 October. Shares for First Quantum Minerals – which is responsible for the bulk of Zambia’s copper output – also rose by 5.3 percent on the Toronto Stock Exchange according to the Bloomberg publication. In a media statement on 02 November, First Quantum expounded its bullishness on Zambia’s prospects. As per the company’s chief of government relations, Godwin Beene:



“this budget puts Zambia back on the global stage as a respected and competitive player in the mining sector. New and existing business will now need to be reassured of the security of long-term investments through further reform of the sliding scale of mineral royalties, VAT refund discipline and assurances of stability, that will result in increased investment, more jobs and more taxes through increased production.”



There was, however, some detraction of the budget by Zambia’s former ruling party, the Patriotic Front (PF). In a briefing on 03 November, PF vice president Given Lubinda dismissed the fiscal policy as a hoax, claiming that it is retrogressive, a breach of campaign promises, anti-poor and pro-capital.



Assessment



The 2022 budget is the latest affirmation of the incumbent administration’s commitment to economic and broader governance reform. It builds on several signals of intent made by President Hakainde Hichilema in his first two months in power, which have significantly bolstered confidence in his government and its ability to rescue Zambia from crisis, bridge the credibility gap with economic and political stakeholders, and ultimately steer the country towards a more stable and prosperous economic path. On the governance front, Hichilema has placed highly competent and respected figures in key economic portfolios, in the form of finance minister Situmbeko Musokotwane and central bank governor Denny Kalyalya. Hichilema has also facilitated the return of former finance minister Felix Mutati to the executive fold, who will oversee the increasingly important science and technology portfolio, and in effect, Zambia’s modernisation and digital transition. Policy wise, Hichilema has largely delivered on his pledge of transparency regarding the country’s debt profile by way of upward revisions to the debt stockpile, while the stipulated debt target – although ambitious – demonstrates his understanding of the need for consolidation. Particularly noteworthy in this regard is the apparent commitment to market-led growth (and consolidation). This is evident in a reduction in corporate taxes and the reintroduction of the deductibility of mining royalties. At face value, these measures may appear to shift the burden of consolidation away from companies and contribute to the widening of the deficit in the immediate term; however, investment and growth gains in the longer term may offset the direct revenue losses.



Despite the clear directional shift by the Hichilema administration, there is a greater chance that Zambia will only acquire its envisaged programme from the International Monetary Fund (IMF) in the first quarter of 2022. As stipulated by Zambian officials, the country is seeking a staff-level agreement. This will outline policy reforms and a medium-term economic framework in the ensuing discussions. Zambia’s commitment to the tenets of the accord will then precipitate a full agreement by the IMF board, which will then allow the country to pursue restructuring under the G20’s Common Framework. Sentiment that Zambia will only acquire a programme in early 2022 is further reinforced by remarks made by the IMF chief, who noted that “there still is work to be done”. Key shortcomings include a clear plan and commitment by Zambia to moderating subsidies and reducing its debt stockpile which – according to the fund – stood at nearly 120 percent of GDP in 2021. Zambia may also be pressured to undertake further tax reform, including a repeal of the sliding scale royalty regime – where rates fluctuate in accordance with market prices – and VAT. Contentions have also been raised over the size of Zambia’s deficit target, with some commentators noting that it is disproportionately low given spending and revenue projections. Nevertheless, current indications are that Zambia is willing and able to undertake the necessary changes that would ultimately result in the extension of an IMF programme. To assist in making the requisite policy adjustments, the IMF may grant Zambia a Staff Monitored Programme, a technical assistance scheme aimed at remedying policy shortcomings and realigning objectives with actual economic realities.



In the broader economy, Zambia is expected to continue to pursue reforms that stimulate inclusive growth. A focal point for this will remain the mining sector, where the government is expected to broaden reforms with the goal of unlocking a mooted USD 2 billion in investment, and repositioning Zambia as a choice investment destination; a mantle that it lost due to the policy mishaps of the former administration. Besides the above-mentioned tax changes, the Hichilema government may seek an amicable agreement in ongoing disputes, such as the long-standing tussle with Vedanta Resources, in the hopes of sending a positive signal to investors. Outside of mining, the new government is expected to promote investment and growth in sectors with a high employment yield, such as agriculture, construction, manufacturing, energy and tourism through various incentives. Such changes and generally pro-market orientation should maintain positive sentiment among portfolio and direct investors. This, in turn, is likely to lend to a generally stable Kwacha, modest performance in government securities, and modest capital inflows.



Despite objections by the Patriotic Front (PF), there are no tangible risks to the administration’s economic trajectory; nor is there any credible reason to suggest that Hichilema will shift from his reformist stance. The fact that the United Party for National Development (UNDP) does not have an absolute majority is a tail risk to Hichilema’s policy trajectory due to the fact that it its policy promulgation is vulnerable to being countered by the PF. However, the PF is itself divided, with several members calling for reform of the party to better compete with the UPND and to prevent it from becoming redundant. The UPND can also count on the endorsement of independent candidates, many of whom are ideologically aligned with the ruling cohort. Finally, the likelihood that Hichilema abandons his reform agenda appears slim at present. For one, the new president has maintained the same policy positions for the past decade, and simply refined them (and their framing) after losing to former president Edgar Lungu on two occasions. His persecution under Lungu may also dissuade the new president from pursuing a similar heavy-handed approach to governance. But most importantly, he appears cognisant of the small margin for error due to Zambia’s plight, and limited patience among expectant Zambians, foreign investors, and multilateral partners that have all backed his promise of fundamental change. If anything, Hichilema may opt for a consolidation path that limits the burden on consumers in order to avoid popular backlash. However, he appears unlikely to revert to the economic populism and authoritarianism that characterised former regimes in Zambia.

Zambia – Picking up the can

*This analysis was produced by the team at Signal Risk



Sudanese military chief, General Abdel Fattah al-Burhan, claimed on 26 September that soldiers under his charge repelled on 25 September an attempted incursion by Ethiopian forces.



<h2 class="wp-block-heading" id="h-seizing-a-crisis">Seizing a crisis</h2>



According to the general, Ethiopian personnel attempted to seize territory in the Umm Barakit area of the disputed al-Fashqa border region, taking advantage of the instability in Sudan caused by the recent coup attempt. However, Sudanese Armed Forces (SAF) acted swiftly, prompting the Ethiopian troops to retreat. Al-Burhan concluded his statement by noting that &#8220;[we] will not allow the Ethiopian forces to enter al-Fashqa after reclaiming the territory&#8221;.



Al-Burhan’s claims of an Ethiopian incursion have yet to be verified by sources outside of Sudan. His counterparts in the Ethiopian military also failed to respond to requests for commentary; however, Ethiopian government sources quoted by the al-Jazeera news outlet categorically denied Burhan’s claims, stating that “we deny the movement of our forces on the Sudanese border or their incursion into any area&#8221;.



<h2 class="wp-block-heading">Taking the gap</h2>



The purported Ethiopian incursion into Sudanese-held territory in al-Fashqa is by no means unprecedented. Armed forces belonging to both countries have made a habit of taking advantage of “strategic openings” in order to annex more territory in the prized food-growing region. Previously, Ethiopian authorities – and in particular, those from the Amhara region, which have the most intense interest in al-Fashqa – have accused the SAF of leveraging vacuums left by their redeployment to Ethiopia’s Tigray region as a means to seize more territory. Specifically, in December 2020 when Amharan forces were redeployed from al-Fashqa to counteract the dissident Tigray People&#8217;s Liberation Front (TPLF), the SAF quickly claimed all areas that were vacated by the Amharans.



Like their Ethiopian counterparts, the Sudanese have denied any wrongdoing on their part in the broader tussle over al-Fashqa. Commenting on the December territorial annexation, Sudanese prime minister Abdalla Hamdok stated that “we want our relationship to be good with Ethiopia, but we will not give up an inch of Sudan’s land”. Hamdok’s bullishness is understood to be rooted in the notion that Khartoum has a superior claim to al-Fashqa than Addis Ababa. In the most recent settlement on the area, concluded in 2008, Ethiopia formally recognised Sudan’s sovereignty over al-Fashqa, in return for then-leader Omar al-Bashir allowing Amharan settlers to remain in the area. However, changes in government in Ethiopia and Sudan have seen the settlement collapse.



<h2 class="wp-block-heading">An impending war</h2>



The sabre-rattling and military manoeuvring have given rise to concerns over full-blown conflict between the two countries, in a horn-of-Africa region where territorial disputes have a tendency of sparking wars; the 1998 Ethiopian-Eritrean border war over a less lucrative Badme region is a case in point. Fearing a similar outcome, countries with elevated interests in the region have attempted to negotiate peace. In August, Turkey – which is becoming a dominant player in the region – offered to mediate the dispute over al-Fashqa during a meeting between General al-Burhan and Turkish president Recep Tayyip Erdogan. While Sudan agreed to Turkish mediation, Ethiopia ignored the offer.



<h2 class="wp-block-heading">Mutual destabilisation</h2>



The dispute over al-Fashqa is not the only development that is tarnishing relations between Ethiopia and Sudan. Just as concerning are claims by Ethiopian officials that Sudan is actively arming and shielding Tigray and Oromo forces that are attempting to overthrow the government of Abiy Ahmed.



<h2 class="wp-block-heading">Support subversion</h2>



Specifically, Ethiopian officials claimed in September that Tigray Defense Forces (TDF) and Oromo Liberation Army (OLA) militiamen were utilising refugee camps in Sudan as training and recruitment facilities. They were then crossing into Ethiopia using identity cards issued by the United Nations High Commissioner for Refugees (UNHCR). This, according to the Ethiopian authorities, was part of a



strategy by the TDF and OLA to expand the Tigray conflict into the Amhara and Benishangul-Gumuz regions.



Interestingly, the allegations by Ethiopian authorities were somewhat corroborated by the United Nations (UN). An UNHCR official quoted on 07 September by the France24 publication stated that “the agency was aware of reports alleging Ethiopian refugees registered in Sudan were now involved in the conflict”. However, the official noted that he and the UN agency were “not in a position to verify” these claims.



Prior to that, in May, Ethiopian general Tesfaye Ayalew made similar accusations. Speaking at the time to the Ethiopian Fana Broadcasting Corporation, Ayalew claimed that as many as 320 TDF fighters attempted to cross from Sudan into Ethiopia near the Tigray region town of Humera. They were either killed, captured, or died of thirst in the arid area.



Unsurprisingly, Sudan has repeatedly denied claims that it is supporting destabilising forces in Ethiopia. In fact, Sudan has gone as far as insinuating that Ethiopia has shunned its efforts to broker peace between the federal government and the Tigray People’s Liberation Front (TPLF). On 08 August, Sudanese prime minister Hamdok rebuked Ethiopia and recalled the country’s ambassador to Addis Ababa after his counterpart, Abiy Ahmed, suggested that Sudan was not a credible party to facilitate negotiations between the government and Tigray leaders.



<h2 class="wp-block-heading">Fraught frenemies</h2>



Like the tensions over al-Fashqa, the claims of subversion are not without precedent; especially in the post-colonial era, during which both countries have supported subversive elements. Most notably, Ethiopia’s government under the Marxist dictator, Mengistu Haile Mariam, provided military support to the South Sudanese SPLM/A movement, which at the time was fighting to secede from Sudan. This continued until the late 1990s and South Sudan’s eventual secession in 2011; although in the latter stages of the SPLM/A’s struggle, Ethiopia’s backing was more technical than operational in nature.



In turn, Sudan supported the TPLF, which eventually overthrew Mengistu’s so-called Derg regime in 1991. More recently, Sudan was one of the few countries that openly engaged with the Eritrean regime of Isaias Afwerki to the ire of Ethiopia. However, relations thawed somewhat from 2011 onwards.



<h2 class="wp-block-heading">The dam squabble</h2>



The security-related concerns occur against the backdrop of a geo-economic dispute over Ethiopia’s Grand Ethiopian Renaissance Dam (GERD). Efforts by Ethiopia, Egypt and Sudan, and the wider international community to establish a treaty on the reservoir prior to the second-stage filling were fruitless, with Ethiopia completing the process in early July without a legally binding agreement. Expectedly, the move was rejected by Sudan and Egypt, with Khartoum accusing Ethiopia of “attempting to impose fait accompli policies and ignore both downstream countries legitimate interests and serious concerns”.



Historically, it has been presumed that tensions over the GERD centred on issues pertaining to the operation and filling of the dam, the potential for water-sharing talks, the establishment of a conflict resolution mechanism, and technical issues related to drought periods and data exchange. While somewhat true, there appears to be a more significant issue under contention – the share of Nile waters that countries are entitled to. This was brought to the fore by Abiy Ahmed in his visit to Uganda in August, during which he called on upstream countries that have not signed or ratified the Nile River Cooperative Framework Agreement (CFA), also known as the Entebbe Agreement, to do so quickly.



Drafted in 2010 – and signed by Ethiopia, Uganda, Kenya, Tanzania, Rwanda and Burundi (six out of the ten Nile Basin countries) – the Entebbe Agreement was intended by upstream countries to replace the 1959 Nile Waters Agreement. This was on the basis that the colonial framework afforded downstream countries like Egypt and Sudan a disproportionate share of the Nile’s waters; Egypt was allotted 55.5 billion cubic metres of water per year, and Sudan 18.5 billion cubic metres per year. Unsurprisingly, Egypt and Sudan have fiercely rejected the Entebbe Agreement and lobbied against the assent of other Nile basin countries, leading to its side-lining. However, with the advent of the GERD and growing concerns over water security in the Nile Basin, talk of finalising the Entebbe Agreement and ensuring more equitable water quotas has gained momentum. Expediently, Ethiopia has seemingly



leveraged such contentions and their resonance among Nile Basin countries as reason to flout a concrete agreement with Sudan and Egypt.



Fearing further deterioration, the United Nations Security Council (UNSC) called on 15 September for a resumption of negotiations led by the African Union (AU), with a goal of reaching a binding agreement within a reasonable time frame. All three stakeholders have yet to respond to the UNSC directive; however, historically, Ethiopia has previously endorsed an AU-led initiative, while Sudan and Egypt have opposed it.



<h2 class="wp-block-heading">Assessment</h2>



Recent developments underscore the complexity and fragility of relations between Ethiopia and Sudan. While this can be traced to a complicated history and deep-seated mistrust, such fault lines have been compounded recently by a zero-sum position on key issues, as a result of the political interests of Abiy Ahmed and Abdalla Hamdok. In an Ethiopian landscape where his governance faces myriad existential threats, Ahmed has a strong incentive to be bellicose towards any external party that threatens Ethiopian interests (mainly as a deterrent to both internal and external dissidents). In assuming such a posture, he also sends a strong signal to his base and Ethiopians at large regarding the ends to which he is willing to go in order to protect their interests, thereby guaranteeing domestic support for his administration. In this narrow context, it is rational for Ahmed to remain uncooperative in the al-Fashqa dispute given its importance to the Amharans (who are among his foremost backers) and the tussle over the Grand Ethiopian Renaissance Dam (GERD), which is central to the country’s growth and development prospects. Hamdok faces similar pressure to exude strength, not only as a deterrent to elements aligned with former president Omar al-Bashir, but also to demonstrate to the Transitional Military Council (TMC) and the broad Sudanese population that he is a sturdy leader who is willing to safeguard their interests. Like his Ethiopian counterpart, this narrow context makes it somewhat rational for Hamdok to maintain Sudan’s current position.



In light of the prevailing dynamics and historical precedent, allegations that Sudan is aiding the Tigray People’s Liberation Front (TPLF) cannot be dismissed. In addition to the insinuations made by Ethiopian officials, a key concern among observers of the conflict in Tigray is how the TPLF has been able to maintain its campaign for such a protracted period in the absence of formal channels for funding and weapons procurement. Naturally, this supports the assumption that the TPLF must be receiving some support from external parties. While yet to be fully confirmed, it is not entirely implausible that Sudan – and possibly Egypt – is backing the TPLF. Sudan arguably has some interest in seeing the conflict in the Tigray region metastise and the Abiy Ahmed administration weakened. If the conflict extends to Ethiopia’s Benishangul-Gumuz region and the GERD is disrupted, it will ease Sudan’s worries over water security. Furthermore, a weaker Abiy Ahmed administration – perhaps through some settlement that dilutes the influence of the Amharan contingent in the federal government – could see Ethiopia take a softer position on the al-Fashqa dispute. At present, there is no evidence to suggest that Ethiopia is supporting any anti-government elements in Sudan. However, should there be more credible proof that Sudan is backing dissident elements in Ethiopia, Addis Ababa may respond in kind by supporting Bashir-linked elements, including within the Sudanese military, who have demonstrated their intent to subvert Sudan’s Sovereign Council-led transitional government.



In the near term, bilateral relations between Sudan and Ethiopia will remain fractured, with the possibility of further deterioration. This will be primarily driven by Hamdok’s political calculus amid emerging challenges to his leadership. Unlike Ahmed, who was recently re-elected on the back of a landslide victory, Hamdok’s position is far less secure. As noted, the Sudanese prime minister faces a trifecta of pressures from the TMC, Bashir-aligned elements, and a political opposition that is growing exasperated with the country’s quasi-militaristic rule. To withstand such pressures and avoid any negative shifts in public opinion, Hamdok may be forced to maintain a hard-line stance, especially towards external rivals. As such, Sudan may be reluctant to engage in any negotiations over GERD and al-Fashqa. At worst, this will stall the establishment of any treaty on the reservoir and incentivise further tit-for-tat skirmishes in al-Fashqa. However, full-blown conflict between the two countries is still unlikely.



In the longer term, there is the possibility of a general improvement in relations based on the fact that the benefits of cooperation far outweigh those of conflict. A belligerent stance may satisfy short-term political agendas; however, a long-term adversarial stance is counterproductive. In general, constant tensions (and full-blown conflict) are highly undesirable for two countries that are facing myriad social, political, and economic challenges. Given these fault lines, more significant conflict between Ethiopia and Sudan could be multi-layered and subject both governments to internal and external threats. Such an outcome is also undesirable for the region at large – and the international community – given the risk of wider fragmentation in a highly strategic region. Any war between the two countries would necessarily drag in other actors such as Egypt and possibly Kenya. In contrast, there is more to gain for all parties from rapprochement. The GERD is a case in point. Sudan could benefit by way of cheap and reliable energy exports from the reservoir, while Ethiopia would have a consistent client and source of revenue in Sudan. There is also room to resolve the al-Fashqa dispute in an amicable manner by reinstating the former Bashir-era agreement, which held firmly for more than a decade. Such considerations – of the benefits of peace and the cost of war – are one of several reasons why the two countries have exercised restraint to date.



Steady long-term relations between Ethiopia and Sudan will necessarily require external intervention and trade-offs by both governments on key diplomatic issues. Positively, after securing re-election, the Abiy Ahmed administration may be slightly more amenable to the required trade-offs. Ahmed could demand Sudanese endorsement for the Entebbe Agreement and African Union-led negotiations on the GERD, in exchange for Ethiopia’s recognition of Sudanese sovereignty over the al-Fashqa region. What is equally positive is a more active foreign policy by the United States (US) under President Joe Biden, especially in the Horn of Africa region. The US, which has strong influence over Sudan and Ethiopia, can leverage its institutional power to steer both countries away from further escalation and ensure that agreements are upheld. It will also be necessary to ward off any spoilers (like Egypt) which have an interest in maintaining frosty relations between Ethiopia and Sudan.

Signal Risk on troubled lands, troubled waters

*This analysis was produced by the team at Signal Risk



The apparent success of the multinational intervention in Cabo Delgado province has begun to shift the discourse on Mozambique’s liquefied natural gas (LNG) sector and its wider economic prospects. After a period of deep pessimism and uncertainty in the aftermath of the March attack on Palma, key actors have exuded greater optimism of late.



<h2 class="wp-block-heading" id="h-an-imminent-comeback">An imminent comeback</h2>



First to express confidence in the future of Mozambique&#8217;s LNG sector was Minister of Mineral Resources and Energy, Max Tonela. Speaking during a meeting of the Confederation of Economic Associations (CTA) – the country’s largest business association – on 11 August, Tonela assured local stakeholders that LNG investors will soon return to Cabo Delgado following the recent gains made by the Mozambican Armed Defence Forces and police (FDS) and their Rwandan counterparts. His confidence was no doubt boosted by the 05 August liberation of the strategic town of Mocimboa da Praia from insurgent control.



<h2 class="wp-block-heading">Totally energised</h2>



Tonela’s position was echoed on 27 August by the African Development Bank (AfDB), which has lent more than USD 400 million to TotalEnergies for the multinational company&#8217;s Mozambique LNG project. In a statement to the Reuters news agency, AfDB president Akinwumi Adesina noted that the ongoing stabilisation of Cabo Delgado province should support the resumption of activities at the Mozambique LNG project within one year to 18 months.



The project was arguably the most affected by activities of the al-Sunnah Islamist militant group, given the fact that its contractors or those of its partners made up the bulk of the non-native community in Palma. Its facility in the Afungi peninsula – which has been under the oversight of local security personnel since April – has also served as a sanctuary for those fleeing violence in Palma. Unsurprisingly, territories in the vicinity of the concession were frequently targeted by militants. Nevertheless, since the deployment of Rwandan forces in mid-July, militants have been cleared from surrounding areas. The joint forces have also commenced with the establishment of a 25-kilometre security cordon around the concession, which is a key demand for the company to resume operations.



TotalEnergies itself has yet to publicly comment on the latest developments; however, its commitment to resuming its venture in Mozambique was demonstrated by recent personnel changes within the company. As per reports from 30 August, Maxime Rabilloud was appointed as country director for Mozambique, replacing Ronan Bescond. Rabilloud has vast experience in developing hydrocarbon projects in challenging jurisdictions and engaging with Lusophone stakeholders, having previously spearheaded TotalEnergies’ office in Brazil.



<h2 class="wp-block-heading">The peripheral push</h2>



While much of the talk on Mozambique’s LNG sector has surrounded TotalEnergies, another investor – the Italian-owned Eni – has continued to make steady progress on its venture.



On 17 June, a spokesperson for Eni noted that the company is on track to begin commercial exports of LNG from its Coral South Floating LNG facility (FLNG) in 2022. Located some 100 kilometres off the coast of Cabo Delgado province, Eni’s facility has been largely unaffected by the violence on land, thus allowing the company to maintain its schedule. The project, which cost roughly USD 7 billion, is expected to produce 3.4 million metric tonnes per annum (mmtpa) at scale, considerably less than TotalEnergies’ capacity of 13.1 mmtpa, and ExxonMobil’s capacity of 15.2 mmtpa. As part of an agreement, all gas extracted by Eni at Coral South will be sold to BP for a period of 20 years.



<h2 class="wp-block-heading">Assessment</h2>



The optimism demonstrated by key stakeholders in Mozambique’s liquefied natural gas (LNG) sector is largely rhetorical and does not necessarily shift timelines associated with progress in the sector and associated economic gains. As previously indicated, despite the declaration of force majeure, there was little to suggest that TotalEnergies would abandon its venture in Mozambique, especially after a substantial layoff and the conclusion of myriad funding and sales agreements. The same applies to ExxonMobil. While the United States (US) energy major is less exposed to insecurity in Cabo Delgado province (due to less spending thus far) there was insufficient evidence to suggest that it would completely divest from Mozambique and forgo a lucrative opportunity in the frontier market. Accordingly, it was noted that security concerns would delay construction activity by TotalEnergies – and ExxonMobil’s final investment decision – by at least a year as the companies assess the trajectory of the counter-insurgency efforts. Currently, as there are clear indications of a decline in the threat facing key LNG interests, both companies will likely proceed with their respective ventures.



The delay in construction activity by TotalEnergies and ExxonMobil will result in slower-than-expected economic growth and consolidation of key accounts in 2021. As per the latest April publication by the International Monetary Fund (IMF), the domestic economy is projected to grow by 1.6 percent in 2021, recovering from a 1.3 percent GDP contraction in 2020. This is in contrast to forecasts prior to the security-related disruptions, which stated that the Mozambican economy would grow upwards of 2.5 percent in 2021. The current expected growth will have a soft consolidatory effect, with the deficit-to-GDP ratio expected to only decline from 5.4 percent in 2020 to 4.1 percent in 2021. The debt-to-GDP ratio on the other hand, will increase from 122.2 percent in 2020 to 125.3 percent in 2021, due to the uptake of emergency loans. Mozambique’s current account balance will also remain fragile at a deficit of 68.9 percent of GDP in 2021, while the country is expected to have a modest stock of reserves for the year in 2021, at an average of 2.8 months of import cover. That said, the commencement of exports by Eni – and the potential resumption of construction activities by TotalEnergies and ExxonMobil, alongside a recovery from the coronavirus-induced slowdown – could result in growth of more than 4 percent in 2022.



Should TotalEnergies commence with construction activities in 2022 or early 2023, this will – all things being equal – defer Mozambique’s expected LNG boom to the latter half of the current decade. Remarks by TotalEnergies suggest that it requires roughly three years to finalise construction activity and make the first commercial exports. This means that if the undertaking does commence as planned, it may only conclude in 2025 or 2026. Should ExxonMobil make its investment decision in 2022 and commence construction activity, there is also some consensus that it may only make first exports after 2026. Barring unforeseen events like natural disasters, further delays to the LNG timeline are seen as increasingly unlikely, especially given the commencement of processes to establish security buffers. Fuel companies typically have a relatively higher risk appetite than other commercial enterprises and have adapted to jurisdictions that are as insecure as Mozambique, such as Libya and Nigeria. Accordingly, once the companies’ minimum security conditions are met in Cabo Delgado province, they will likely commence with operations.



Mounting financial pressure on Mozambique may however, pressure the government to restructure its sole Eurobond and bilateral debt via the G20’s common framework. The USD 900 million bond matures in 2031 and has a coupon rate of 5 percent until 2024, which will increase to 9 percent thereafter. In the absence of the LNG windfall, Mozambique’s financing options will be limited, especially given a low-growth environment due to the coronavirus pandemic. As such, seeking debt treatment could be prudent on the part of Mozambican authorities. The plausibility of restructuring was noted by Fitch Ratings in its latest assessment on 21 July. The agency maintained its CCC (sub-investment) rating of Mozambique on account of existing risks to debt sustainability, elevated financing needs, unresolved public sector liabilities, and possible recourse via the G20.

Signal Risk on Mozambique – Going somewhere slowly

*This analysis was produced by the team at Signal Risk 



The International Monetary Fund (IMF) concluded two weeks of virtual discussions with Seychellois authorities on 06 July. Following the conclusion of the meetings, the IMF confirmed that it had reached a staff-level agreement on an Extended Fund Facility (EFF) with local officials, which is estimated at roughly USD 107 million and expected to extend over a 28-month period. The agreement is awaiting final approval from the IMF’s executive board, which is expected to convene in the coming weeks.



<h2 class="wp-block-heading" id="h-arrivals-on-the-up">Arrivals on the up</h2>



Following the discussions, IMF mission head Boriana Yontcheva noted that the local economy is showing signs of recovery following an unprecedented GDP contraction of 13.5 percent in 2020. According to Yontcheva, the return to growth is driven by an uptick in the local tourism industry (which, in conjunction with related industries, accounts for up to two thirds of annual output).



This uptick was most clearly evidenced in a report released by the National Bureau of Statistics (NBS) on 12 July, which described a six-fold increase in tourist arrivals from the first to second quarters of 2021. As per the NBS, the country recorded 44,000 visitors in the second quarter, compared to 7,000 in the first.



The NBS data also revealed another positive development for the sector. Since Seychelles re-opened its borders in March, the majority of visitors have been from non-traditional markets (namely Russia, the United Arab Emirates (UAE) and Israel). This is largely believed to reflect the recent resumption of airlinks – such as those operated by Russian carrier AEROFLOT and the UAE’s Emirates airlines – between Seychelles and these markets.



According to a spokesperson for the tourism department, officials are hoping that arrivals from Seychelles’ main markets – Germany, France and the United Kingdom – will pick up towards the end of the year. Should the projected rally in the tourism sector proceed as planned, the IMF notes that the local economy could grow by over 7 percent in 2021.



<h2 class="wp-block-heading">Bridging the gaps</h2>



The government is hoping that the projected recovery will grant it some breathing room to shore up both internal and external buffers. The tourism department estimated that revenue from the sector shrunk by 61 percent (USD 322 million) in 2020. Combined with a substantive increase in healthcare, stimulus, and social protection spending, IMF data indicates that Seychelles recorded a 16.3 percent budgetary deficit in 2020 (compared to a 2.8 percent surplus recorded in 2019). Financing the sizeable deficit saw a historic increase in public debt to 98 percent of GDP in 2020, up from 58 percent in 2019.



The external position saw a similar deterioration amid a fall in foreign earnings; the current account deficit expanded to 28 percent of GDP in 2020, from the 16 percent deficit recorded in 2019. Seychelles was able to bridge the balance of payments shortfall through external credit, such as a USD 31 million emergency loan secured through the IMF in May 2020.



<h2 class="wp-block-heading">Shot success</h2>



The recent rebound in tourist arrivals reflects efforts by authorities to promote Seychelles as a safe travel destination amid the ongoing coronavirus pandemic. To this end, Seychelles became the first African country to roll out a coronavirus vaccination programme in January. Since then, health officials have administered 140,000 doses of either the Chinese-manufactured Sinopharm or United Kingdom-developed AstraZeneca (Covishield) vaccines, and have fully inoculated 68,000 citizens (equivalent to 70 percent of the population) – a higher proportion of its population relative to most countries in the world.



<h2 class="wp-block-heading">Exposure</h2>



Despite the extent of inoculations, Seychelles was unable to ward off a marked uptick in coronavirus infection rates that began in January and peaked in mid-May. Coronavirus cases increased from 275 recorded on 01 January to 17,005 on 14 July. According to authorities, the uptick in case numbers is



due to a number of factors, including the reopening of the economy to tourist arrivals in March and the emergence of the more virulent Delta variant of coronavirus in the archipelago.



The increase in infection rates was accompanied by an elevated mortality rate. Seychelles recorded its first coronavirus-related death in early January; as of 14 July, this figure stands at 77. As a result, authorities tightened certain containment measures in early May. These included the three-week closure of schools; shortening the operating hours of stores; and a ban on group sporting activities and conferences. The tourism department was quick to reassure potential visitors that the regulations would not impinge on travel and tourist activities.



<h2 class="wp-block-heading">Assessment</h2>



A return to pre-pandemic levels of GDP will take several years to achieve. Due to the extent of the 2020 recession, the best-case scenario is that the economy will be able to return to its pre-pandemic output level by end-2022/early 2023. For the most part, this is on account of the rate at which tourists are expected to return to the country. Current estimates suggest that, by end-2021, arrivals are only expected to reach roughly 40 percent of the 428,000 visitors received in 2019. The pace of the arrivals is expected to pick up in 2022, with estimates that monthly arrivals could reach 2019 levels by the end of the third quarter of 2022. While Seychelles’ economic outlook is positive, it remains vulnerable to external shocks due to its dependency on tourism. Possible risks include lower-than-expected demand in key markets and disruptions in the global aviation industry.



Authorities are expected to embark on a package of economic reforms over the short-to-medium term. These will prioritise fiscal and structural measures and will be conducted in step with the Extended Fund Facility (EFF) that the International Monetary Fund (IMF) board is expected to approve in due course. Budgetary and debt sustainability will be particularly important in this regard. This was confirmed on 06 July by finance minister Naadir Hassan when he stated that “reforms are needed to ensure that the government becomes more disciplined with its finances, which in other words, means that we will have to do more with less”. As a result of consolidation efforts, the internal deficit is expected to contract to 9.7 percent of GDP in 2021 (compared to the 16.3 percent deficit in 2020). Relatedly, public debt is set to hover around 100 percent of GDP in 2021 before beginning to decline in 2022. In a similar vein, increased foreign exchange earnings from tourism are expected to see the current account deficit narrow to 22 percent of GDP in 2021, from a deficit of 28 percent in 2020. The notion that the economy is beginning to stabilise is supported by a statement issued by Fitch Ratings on 28 May, in which it maintained Seychelle’s sovereign rating at sub-investment grade B with a stable outlook.



The government has displayed the necessary competence to contain the coronavirus outbreak over the long term. At present, the local outbreak appears to be stabilising. Total active cases have declined to 856 as of 14 July, down from 2,739 recorded on 16 May at the peak of the recent wave. Although active case numbers remain relatively elevated, the country’s health system does not appear to have come under any undue pressure. Despite the increase in transmission rates and deaths witnessed in the first half of the year, the national coronavirus vaccination programme is still regarded as among the most effective in the world. As noted by President Wavel Ramkalawan in a May interview, the majority of people who had been hospitalised for coronavirus had not received the vaccination prior to being infected. On the whole, a combination of targeted containment measures and an extensive vaccination campaign should equip Seychelles to weather future waves.



The local political landscape will remain stable following President Ramkalawan’s victory in the 2020 general elections. Ramkalawan achieved a convincing victory in the general election held in October 2020; he defeated incumbent Danny Faure in the presidential leg, while his LDS party secured a two-thirds majority in the 35-seat National Assembly. Speaking to the overall credibility of the elections, Faure conceded defeat on 25 October 2020 after the electoral commission had confirmed the results. Due to the clear mandate received by Ramkalawan in the recent polls, his administration is not expected to face any significant political challenges until the next general elections in 2025.

Signal Risk on Seychelles – Turning tides

*This analysis was produced by the team at Signal Risk 



On 10 July, the NEBE electoral body announced the results of the first round of general elections which occurred on 21 June.



In a widely expected turn of events, the ruling Prosperity Party (PP) won 410 parliamentary constituencies, out of a possible 436. The opposition NAMA party claimed five seats and the EZEMA coalition won four. The remaining seats were shared by smaller parties and independent candidates. Results for the country’s state councils have not been released; however, local reports indicate that the PP is also on track to claim a significant majority.



NEBE confirmed that voter turnout stood at more than 90 percent of the 37 million people who were registered to vote. This, according to the body, was an unprecedented turnout and an indication of Ethiopians’ “thirst for democracy” despite the many concerns leading up to the election.



<h2 class="wp-block-heading" id="h-the-responses">The responses</h2>



Unsurprisingly, Prime Minister Abiy Ahmed has been the most vocal, after his party swept to an overwhelming victory. In a statement on 10 July, Ahmed hailed the conduct and inclusivity of the election, along with the fact that the PP has been chosen “by the will of the people to administer the country”.



At the time of writing, the opposition had yet to formally comment on the outcome; however, local reports indicate that the EZEMA party has filed as many as 200 complaints after local officials and militiamen allegedly blocked observers in several regions, including Amhara and the Southern Nations, Nationalities, and Peoples&#8217; Region (SNNPR). NEBE has acknowledged receipt of these complaints and is currently investigating them.



Externally, the responses – which came before the 10 July announcement – have been mixed. In its preliminary assessment on 23 June, the African Union (AU) observer mission, which was led by former Nigerian president Olusegun Obasanjo, noted that: “Overall the election and election day processes were conducted in an orderly, peaceful and credible manner”.



The AU’s position differs quite significantly from that of the United States. In a statement on 24 June, Secretary of State, Antony Blinken, labelled the election as neither free nor fair. Blinken cited the opposition boycott, the detention of political rivals, and violence in multiple parts of the country as factors that undermined the credibility of the polls. To address these issues and to ensure the long-term stability of the Ethiopian state, Blinken called for the initiation of political dialogue.



<h2 class="wp-block-heading" id="h-the-evolving-context">The evolving context</h2>



The announcement of results comes amid an evolving conflict landscape in Ethiopia’s Tigray region.



This follows the launch of Operation Alula by the TDF (the militant arm of the dissident TPLF party) around 18 June. After capturing as many as six towns between 18 and 24 June, the TDF secured the regional capital of Mekele on 28 June. Details of the battle for Mekele have not been disclosed; however, international media outlets have shown thousands of captured federal, Amharan and Eritrean soldiers.



<h2 class="wp-block-heading" id="h-the-federal-account">The federal account</h2>



On 29 June, the prime minister formally acknowledged that the federal army had withdrawn from Mekele. According to Ahmed, this was a strategic withdrawal based on the fact that the city has “lost its centre of gravity in the current context”. His spokesman, Redwan Hussein, elaborated on this on 30 June. According to Hussein, the government’s withdrawal came after it “weighed the costs of humanitarian and reconstruction expenses, immense, though unfair, pressures by the international organizations and NGOs and the threat building up on the country’s western border”. According to Hussein, joint military drills between Sudan and Egypt are “indicative of the need to get prepared for any eventualities along the western border”. Hussein also echoed Ahmed’s call for an immediate and unconditional ceasefire in Tigray.



<h2 class="wp-block-heading" id="h-the-dispute">The dispute</h2>



The comments by Ahmed were immediately disputed by the spokesman of the TPLF, Getachew Reda, who suggested on 30 June that federal troops were forced out of Mekele. Reda also noted that the TPLF would not stop its campaign until it has recaptured the whole of Tigray region.



Nevertheless, Reda did stipulate the TPLF’s conditions for a ceasefire. These include the legitimisation of TPLF rule in Tigray region; the immediate withdrawal of Amharan and Eritrean forces; procedures to hold Prime Minister Ahmed and Eritrean president, Isaias Afwerki, to account for the damage caused in Tigray; an independent probe by the United Nations; and the distribution of aid and safe return of displaced Tigray people.



<h2 class="wp-block-heading" id="h-assessment">Assessment</h2>



The outcome of the first round of general elections means that the ruling PP already has an unassailable absolute majority in the 547-member parliament going into the September round of elections. The present outcome also means that Abiy Ahmed will be reappointed as prime minister when parliament is constituted after the September ballots. At this juncture, voting in 73 constituencies that was deferred due to security-related concerns is scheduled to take place. This includes constituencies in the Somali, Oromia, SNNPR, Benishangul-Gumuz and Harari regions. A new timeline for elections in Tigray region – which has 38 parliamentary constituencies – has yet to be provided. Nevertheless, the ruling party is expected to claim the majority of votes in the constituencies outside Tigray come September.



The PP’s effective victory was largely expected. Apart from the fact that the PP was intent to win at all costs – including by utilising undemocratic means – several factors worked to its advantage and ultimately guaranteed the party an electoral majority. The first is cross-sectional appeal. Unlike the majority of its rivals which count on support from singular ethnic groupings, the PP draws significant support from a plurality of regions. Second, despite being maligned by ethno-nationalist figures, the PP’s brand of pan-Ethiopianism does have some broad appeal; Abiy Ahmed also carries an unparalleled appeal in Ethiopia. This is particularly the case among urban and educated youths and middle-aged individuals whose ethnic allegiances are not as rigid as their elderly and rural counterparts. Third, the fragmentation of the political opposition (including the apparent unwillingness by the likes of the OFC and OLF to encourage their supporters to back other opposition candidates) minimised the opposition’s electoral support.



Concerns around the conduct of the election are seemingly legitimate; however, they are unlikely to fuel any anti-government protests in the immediate term. The complaints by EZEMA and the remarks by the United States underscore broad consensus that the election was neither free nor fair. However, EZEMA has not demonstrated any intent to arrange demonstrations in support of its electoral contestations; nor has any other party signalled any intent to initiate any anti-government unrest following the elections. Nonetheless, sentiments that the election was neither free nor fair will sour general perceptions towards the government, especially in Oromia, where two of the region’s largest parties did not participate. This will increase the baseline risk of anti-government demonstrations in Oromia, with potential catalysts being the ongoing trial of key Oromo leaders, such as Jawar Mohamed.



With his stay in power effectively secure, Ahmed is expected to continue his economic, diplomatic, and political agenda. No new major policy announcements are expected until parliament is constituted in September/October; however, Ahmed may expedite ongoing developments surrounding the telecommunications sector. Diplomatically, he will continue to engage with Egypt and Sudan with regard to an agreement on the Grand Ethiopian Renaissance Dam. In this case, Ahmed will avoid any concrete agreement that halts the ongoing second-stage filling of the dam until after the second round of elections. Despite talk of potential conflict with Sudan and Egypt, this is highly unlikely as it is not in the interests of either party to engage in war. Sudan also has a vested interest in the dam, due to the fact that it intends to acquire affordable electricity generated from the reservoir. Politically, there is an outside chance that Ahmed may pursue measures aimed at stabilising the landscape, especially in Oromia. Here, he may pursue dialogue with parties like the OFC and OLF, and possibly extend clemency to figures such as Jawar Mohammed and others who have been arrested for subversive activity, in exchange for their compliance with the PP’s political programme.



Conflict in Tigray region is likely to continue in the immediate term; however, there is an increasing likelihood that the federal government may seek to negotiate a more concrete ceasefire with the TPLF. On 12 July, the TPLF confirmed that its forces were continuing their advance in the hopes of ousting federal, Amharan and Eritrean forces and restoring the pre-war borders of the region. It also confirmed on the day that its forces seized the town of Korem, 170 kilometres south of the regional capital of Mekele, and are pushing to seize control of the town of Alamata, 20 kilometres south of Korem. More importantly, it is becoming increasingly apparent that the government is struggling to maintain the current invasion of Tigray, given security issues in other regions, the TPLF’s combat capabilities, and a relatively hostile Tigray population. Each of these factors and their capacity to impair the federal government’s operations in Tigray were severely understated. Going forward, these factors may prompt the federal government to soften its position on the TPLF and agree to a negotiated ceasefire. Any formal ceasefire could lay the groundwork for a more comprehensive political agreement and an election in Tigray, or some arrangement that could see the inclusion of Tigray stakeholders in federal structures.

Abiy Ahmed

Signal Risk on Ethiopia – Pyrrhic prosperity

*This analysis was produced by the team at Signal Risk 



After a tumultuous 2020, Lesotho’s economic, political and public health concerns have continued throughout 2021. The most topical development of late pertains to the so-called Frazer debacle, involving the Germany-based solar energy developer, Frazer Solar GmbH, and the government of Lesotho.



On 18 June, local reports confirmed that the government filed an application for a stay of prosecution in the South Gauteng High Court in Johannesburg, South Africa, in an attempt to halt further asset seizures by the German solar energy developer. In addition to the filing, the government of Prime Minister Moeketsi Majoro dispatched a ministerial delegation to South Africa to engage authorities on the matter, and to establish a commission of inquiry into the court order which permitted the asset seizure.



The Frazer fracas



The dispute with Frazer Solar is rooted in a 2018 deal between the government and the solar manufacturer, which went sour due to the actions of Basotho authorities.



Solar aspirations



Frazer Solar was contracted to provide 40,000 solar water heating systems, 20 megawatts of solar photovoltaic capacity, one million LED lights, and 350,000 solar lanterns at an undisclosed cost. The project, which was to be financed by the German government, would have formed the first phase of an initiative aimed at supporting Lesotho’s energy transformation by establishing the country as a net exporter of electricity, while improving domestic electricity security and increasing government revenues.



Sudden breaches



Specific details pertaining to how and when the deal was scuppered are limited; however, in 2019, Frazer Solar took action against the government of Lesotho through the South African legal system. At the time, the company accused Lesotho of failing to “execute the project’s financial arrangement” despite the provision of external financing by Germany.



This, according to Frazer Solar, was among a series of unexplained contractual breaches and general unwillingness by Lesotho to engage in the legal process. In a statement in May, Frazer Solar noted that &#8220;the government of Lesotho has been formally notified of these legal proceedings on 25 separate occasions over a period of 25 months since 2019”. This ultimately left the company with little option but to pursue legal action.



Arduous arbitration



In 2020, an independent South African arbitrator awarded undisclosed damages to Frazer Solar. This was affirmed in May, when the South African judiciary declared a default “arbitral award” in favour of Frazer Solar worth EUR 50 million. The judiciary also noted that the company could claim Lesotho’s assets pursuant to the awarded amount.



Reports have since confirmed that Frazer Solar has applied for enforcement of the award in several jurisdictions in which the country has assets, including South Africa, Mauritius, the United States, and the United Kingdom. Assets that are purportedly at stake include water royalties from the Lesotho Highlands Water Project, payments to the Lesotho electricity company by South Africa’s Eskom power utility, and Lesotho’s shareholding in the West Indian Ocean Cable Company.



Calculated disclosure



In the few statements that it has made on the issue, the government has either deflected or denied responsibility. Previously, the government alleged that the deal was finalised under suspicious circumstances. Specifically, Prime Minister Majoro has accused his predecessor, Thomas Thabane, of signing the agreement with no clearance from the finance and energy ministers serving at the time.



More recently, responding to the May ruling, the Majoro administration noted that: “While the government is trying to understand this issue, it urges both the public and its international partners to



remain calm pending investigations”. It also “reassured the public that as a sovereign state, its properties locally and internationally are safe and protected from seizure”.



Conventional conflict



Apart from the Frazer Solar dispute, infighting within the ruling All Basotho Convention (ABC) party continues to weigh on the country’s stabilisation efforts.



Thomas’ resurrection



The latest upheaval began as far back as 09 March, when the ABC’s executive endorsed former prime minister Thomas Thabane as its candidate in Lesotho’s next general elections, scheduled for June 2022; Thabane purportedly remained ABC leader despite stepping down from the premier position in 2020 due to his implication in the murder of his former wife.



He was picked ahead of party chairperson and prime minister, Moeketsi Majoro, and the party’s former deputy, Nqosa Mahao, who led his ouster from the premier position in 2020. Aside from its vote of confidence in the outspoken octogenarian and its faith in his ability to steer the party to victory, the ABC executive did not provide any elaborate reasons for its endorsement of Thabane, or any account of his legal entanglements.



Mahao’s departure



What the move did do however, is highlight a three-way split within the party between sections respectively loyal to Thabane, Majoro and Mahao. This came to a head on 21 April, when Mahao announced his formal split from the ABC and his decision to launch the new Basotho Action Party (BAP). According to Mahao, his decision to abandon the ABC was prompted by infighting within the ruling party, which has crippled its functionality for years; the BAP leader claimed at the time that as many as 20 parliamentarians have pledged to “cross the floor” to the new formation.



This would represent nearly one third of the ABC coalition’s parliamentary seats in the 120-member legislature. Moreover, given the 61-seat governance threshold, it could result in a hung parliament. Tellingly, Mahao pledged upon his departure that he will table a vote of no confidence against Majoro once the BAP members have formalised their split. As of 21 June, this has yet to occur.



Majoro’s fightback



Majoro has not been idle in the face of existential threats to his political aspirations. The prime minister has undertaken two reshuffles in 2021, one in February and the other in June, as he seeks to clear out loyalists to Thabane and Mahao and position his allies in key posts. Portfolios that have been subject to personnel changes include: police; law and justice; local government and chieftainship affairs; communications, science and technology; public service; education and training; and tourism environment and culture.



Big brother’s intervention



Sensing the brewing trouble in the neighbouring kingdom, South African President Cyril Ramaphosa and the Southern African Development Community (SADC) deployed the current minister in South Africa’s presidency, Jeff Radebe, as a special envoy to Lesotho in early May. Radebe engaged with key stakeholders including Majoro, Mahao and King Letsie, in a series of closed-door meetings ostensibly aimed at preventing further disintegration prior to 2022.



Assessment



Recent developments underscore broad instability in Lesotho, which could worsen as the June 2022 elections draw near. Lesotho’s political instability is rooted in the country’s chronically weak institutions and limited resources. This has bred a fiercely competitive political landscape characterised by fluid allegiances and powerplays. In all, the volatile domestic political environment has resulted in the country having had three different prime ministers since 2012, with none serving a full five-year term.



Economically, infighting within political structures and the Frazer Solar debacle will weigh on Lesotho’s recovery and stabilisation prospects. These looked promising as per data published by



the International Monetary Fund (IMF) in April. According to the IMF, output is expected to grow by 3.5 percent in 2021, after contracting by 4.5 percent in 2020. Fuelling the growth is construction activity, commodity and textile exports, inbound investment in nascent sectors such as cannabis, and the broader normalisation of economic activity. Correspondingly, the debt-to-GDP ratio will decline from 50.3 percent to 49.8 percent in the same period. However, the deficit as a proportion of GDP is expected to deteriorate from 7.6 percent to 9 percent between 2020 and 2021, as short-term expenditures outpace inflows, mostly on account of reduced receipts from the South African Customs Union. The current account balance is also forecast to experience a marginal deterioration from a deficit of 15.5 percent to 16.9 percent, alongside the country’s reserves – which are expected to decline from an average of 3.6 months to 3.4 months of import cover.



That said, this outlook faces acute downside risks. Political infighting will dampen investor sentiment at a time when the country is seeking to attract capital to emerging industries such as renewables, diamonds, aquaculture and cannabis. It will also catalyse general policy inertia as political stakeholders prioritise partisan disputes over economic arrangements. Furthermore, should the South African judiciary uphold the arbitral award to Frazer Solar, the attachment of revenues will hamper the country’s already fragile fiscal position. Of greater concern perhaps, is the reputational impact of the dispute. If the Majoro administration fails to account for the government’s actions, it could deter donors and investors from engaging with Lesotho. Finally, failure to resolve the dispute among textile workers will weigh on the productivity of the key sector, at the expense of national output.



Lesotho’s political malaise will also threaten the efficacy of the country’s coronavirus response. Of concern is the failure by government to tend to salary-related grievances among public nurses, who have also embarked on intermittent strikes since the beginning of 2021. Fortunately, the country’s outbreak has plateaued. Since April, active cases have remained between 3,900 and 4,000. This follows a peak of nearly 7,000 cases in February. On the vaccine front, Lesotho has received close to 92,000 doses of the AstraZeneca-Oxford vaccine from the COVAX facility, France and Gem Diamonds; however, only 36,759 have been distributed and less than 200 Basotho are fully vaccinated out of a population of 2.125 million. These factors leave the country susceptible to a larger outbreak, especially given the government’s reluctance to impose stern movement restrictions, and a burgeoning outbreak in neighbouring South Africa.

Signal Risk on Lesotho – Attachments and detachments

*This analysis was produced by the team at Signal Risk 



Officers from the Central Criminal Investigation Division (CCID) arrested former attorney general Jayarama Valayden from his Les Pailles residence shortly before 02:00 local time on 17 May. Valayden was subsequently questioned at the CCID’s Port Louis headquarters before being released at approximately 09:00 the same day.



According to CCID investigators, Valayden was arrested on two provisional charges related to unlawful assembly and violating the Quarantine Act 2020 (which currently prohibits public gatherings of more than ten people).



These provisional charges stem from a peaceful rally attended by approximately 100 people on 16 May outside the local municipality offices in Port Louis. The gathering had been organised by a local civic organisation, of which Valayden is the spokesperson, to express support for the Palestinian people and to call for peace in the current Middle East conflict. Several other activists, including local lawyer Shahzaad Mungroo, were also temporarily detained in connection with the march.



Dubious detention



Valayden’s detention prompted an immediate backlash from several sectors of society. In a 17 May communique entitled “Objectionable Police Practice”, the Mauritius Bar Association (MBA) criticised the arrest, stating that it saw no urgency or necessity in arresting Valayden at his residence. Instead, the MBA argued that it would have been more appropriate to have called the former attorney general in for questioning during business hours.



Opposition parties have gone further in their criticism, expressing concern that the arrests are indicative of Prime Minister Pravind Jugnauth’s allegedly growing tendency to constrain opposition activity and dissent. On the morning of 17 May, Patrick Assirvaden, president of the Labour Party (to which Valayden belongs), stated that the CCID had acted as “the gestapo of Pravind Jugnauth”.



In a somewhat less incendiary tone, leader of the opposition in parliament, Xavier-Luc Duval, wrote to the Commissioner of Police requesting that he seek legal advice from the Director of Public Prosecutions (DPP) prior to formalising the provisional charges against Valayden. As per Duval, this was necessary due to the “political nature of the arrests”, which could have “ramifications on national unity and law and order”.



For its part, the government has yet to respond directly to these allegations. However, in an 18 May media interview, Prime Minister Jugnauth did condemn the “irresponsible behaviour” of certain individuals who had violated public health regulations. The CCID summoned Valayden for a second round of questioning on 18 May and subsequently announced that it would drop the provisional charges against him and instead refer the matter to the DPP.



Social media suspicion



Valayden’s arrest is the most recent example of what government critics argue is the Jugnauth administration’s inclination to exercise greater control over the domestic political arena.



By way of example, Reporters Without Borders (RSF) and the Committee to Protect Journalists (CPJ) were two of 60 organisations to sign on 12 May an open letter seeking to prevent amendments from being made to the Information and Communications Technology (ICT) Act or ICT Act.



The proposed amendments were published by the Information and Communication Technologies Authority (ICTA) in a consultation paper issued in April, and are touted as being critical in addressing the “abuse and misuse” of social media in Mauritius. In this regard, the draft legislation proposes the creation of two central government bodies: The National Digital Ethics Committee (NDEC) – to identify illegal and harmful content – and the Technical Enforcement Unit – to implement the technical enforcement measures as directed by the NDEC.



Despite the intended goals of the amendments, activists are concerned that the vague wording of the changes and the broad mandate ascribed to the proposed state agencies would represent a vast



expansion of the government’s control over domestic internet use. Consequently, the signatories of the open letter argue that the ICT Act represents a substantive threat to both privacy and freedom of expression in Mauritius.



Assessment



The administration of Prime Minister Pravind Jugnauth has in recent years attempted to expand its executive authority beyond constitutionally established parameters. This has manifested most clearly in diminishing tolerance towards criticism, as well as a growing inclination towards controlling sources of dissent (namely: opposition parties, civil society groups, and independent media organisations). Jugnauth’s more hard-line approach to governance has infringed on political rights and individual freedoms (particularly those of opponents and government critics). By way of example, the 2020 Ibrahim African Governance (IIAG) report found that – although Mauritius still ranks at the top of its list – measures of human rights had deteriorated somewhat over the reporting period. Despite Jugnauth’s apparent attempts to exert greater control over the domestic political arena, the country’s democratic structures remain intact. As such, Mauritius’ typically strong governance institutions (such as an independent judiciary, an active civil society, and a free media landscape) are expected to prevent a more substantive deterioration of the country’s democracy. It is therefore likely to retain its position as one of the region’s most robust democracies for the foreseeable future.



Anti-government sentiment is nevertheless likely to escalate over the short-to-medium term. Historically, Mauritius has experienced few, if any, political protests. This changed following the grounding of an oil tanker off the coast of Mahebourg in 2020. Protests held in the capital, Port Louis, against the government’s handling of the crisis were among the most well-attended in the country’s history. While the oil spill triggered the demonstrations, they were buoyed by wider disaffection with the Jugnauth administration, including concerns over corruption and the dynastic nature of the local political system. Significantly, the shift from a relatively passive to a more active civil society appears to have maintained momentum since the 2020 protests. This is evident in the creation of new civic organisations – such as En Avant Moris, or Ideal Democrate – that focus on both local and national political issues. This reflects a build-up of disaffection with the Jugnauth administration that could result in a significant public backlash if the government is perceived as radically overstepping its democratic mandate (by for example, pushing the current ICT Act through parliament). At present however, indications suggest that Mauritius’ political landscape will remain stable over the short-to-medium term. Accordingly, following his re-election in 2019, Jugnauth and the ruling Alliance Mauricien are not expected to face any substantive political challenges until the next general elections in 2024.



The country will remain constrained in its ability to foster a strong economic rebound in 2021. This much was highlighted by the International Monetary Fund (IMF) in its end-of-mission statement on 07 May, following the completion of its 2021 Article IV Consultation mission with Mauritius. As per the IMF, ongoing pandemic-related headwinds pose a substantial risk to the state’s well-regarded recovery efforts, while growth of roughly 5 percent of GDP is forecast for 2021. This is lower than the 7.9 percent improvement projected by the Bank of Mauritius (BoM) in February, prior to the imposition of the national lockdown and the second wave of coronavirus infections.



Ongoing efforts to support the recovery are likely to add pressure to the state’s fiscal position. As noted by the IMF, a more accommodative fiscal policy will be required to facilitate a recovery amid current economic headwinds. To this end, authorities are expected to continue with current stimulus and social protection measures (including wage guarantees, and income support for the informal sector and self-employed individuals) at least over the short term. The government is also expected to prioritise more forward-looking programmes to uphold broader structural transformation towards a more knowledge-intensive economy. Such programmes would require greater investment in local education and technology capabilities. However, the combination of increased spending and slowing public revenue is likely to lead to increased fiscal pressure over the medium term. Specifically, public debt – currently at 88 percent of GDP in 2021 – is forecast to increase to 92 percent by 2024. Accordingly, the IMF notes that, in the wake of the coronavirus outbreak, a return to a more conservative fiscal approach will be required to shore up the necessary buffers to ensure long-term budgetary stability. Outside of the above-mentioned fiscal and macroeconomic concerns, an additional policy focus will relate to the Jugnauth administration’s ongoing efforts to remove itself from the European Union’s so-called “grey-list” of countries whose financial systems could be utilised for money laundering and financing of terrorism.

Signal Risk on Mauritius – Dictatorial drift?

*This analysis was produced by the team at Signal Risk 



The International Monetary Fund (IMF) has recently claimed that it is making progress towards finalising a framework that will help mobilise the resources needed to cover its share of debt relief to Sudan.



The mid-May announcement followed a 26 March meeting between the World Bank and IMF, in which both institutions deemed Sudan eligible for the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative.



Sudan’s qualification for the HIPC initiative comes as it seeks relief for its approximately USD 56 billion external debt owed to international financial institutions, official bilateral creditors, and commercial creditors; 85 percent of this is in arrears. In terms of allocation, USD 2.8 billion is owed to the World Bank, IMF and African Development Bank (AfDB); USD 19 billion to countries in the Paris Club creditor collective; USD 21 billion to non-Paris Club members; and the balance to commercial creditors.



Outstanding requirements



Sudan’s pronounced eligibility for the HIPC is only the preliminary phase of the process. Following this, the country and its economic partners must work towards the actual beginning of the process (known as the Decision Point) and then towards the final Completion Point. Reaching the Decision Point requires the fulfilment of at least four conditions:



· A minimum six-month track record of satisfactory performance under the current IMF Staff-Monitored Programme



· Clearance of arrears with multilateral creditors or an agreement on a strategy to clear them



· An agreement on the reforms that are required to reach the Completion Point



· The provision of debt relief assurances by creditors at Completion Point



Once Sudan has reached the Completion Point, it would qualify for debt relief under the HIPC, and for debt relief under the Multilateral Debt Relief Initiative (MDRI) from the World Bank&#8217;s International Development Association (IDA) and the African Development Fund (ADF), together with beyond-HIPC assistance from the IMF. Paris Club creditors are also expected to provide further beyond-HIPC assistance at the Completion Point.



So far, so good



Sudan and its creditors have made significant progress towards reaching the Decision Point since March.



Raving review



The IMF completed its first review of Sudan’s Staff-Monitored Program (SMP) in early March. The SMP was initialised in September 2020, with the objective of supporting the government’s programme of reforms aimed at stabilising the economy, strengthening social protection, boosting the private sector, and strengthening governance. In this regard, the review concluded that “Sudanese authorities have made tangible progress toward establishing a strong track record of policy and reform implementation”. Substantial reforms undertaken to date include exchange rate unification, removal of fuel subsidies, various tax measures taken as part of the 2021 budget, and an increase in electricity tariffs.



Bridging the gap



Sudan’s creditors and the international community have also responded to Sudan’s need for the clearance of arrears as necessitated by the HIPC.



First, on 23 March, the World Bank announced that it had cleared Sudan’s debt following a USD 1.15 billion bridge loan from the United States government. Then, Sudanese officials stated on 05 May that the country cleared its arrears with the African Development Bank (AfDB) through a USD 425 million bridge loan – provided by the United Kingdom, Sweden and Ireland.



Most recently, French president Emmanuel Macron announced on 17 May that IMF member states have agreed to finance a USD 1.5 billion bridge loan for Sudan to clear its arrears with the IMF. Macron’s



announcement was made during the Paris Conference for Supporting Sudan&#8217;s Transitional Period and the Funding African Economies Summit, held between 17 and 18 May. The French president also expressed that his government would clear USD 5 billion owed to France by Sudan. Shortly after the summit concluded, Sudan’s ministry of foreign affairs also announced that both Germany and Italy had agreed to clear the combined USD 1.5 billion owed to them by Sudan.



Some creditors were not so dovish. During the summit, Kuwait – Sudan&#8217;s largest creditor at USD 9.8 billion – said it would support debt &#8220;resolution&#8221; discussions, while Saudi Arabia – Sudan’s third-largest creditor at USD 4.6 billion – expressed that it would be open to reaching a broad agreement.



The Signal



Sudan is expected to reach the so-called Decision Point for debt relief by the end of June. This much was forecast by the International Monetary Fund (IMF) in its initial press release regarding Sudan’s eligibility for the Enhanced Heavily Indebted Poor Country (HIPC) Initiative in March. This timeline appears achievable given that Sudan has already met the majority of conditions outlined by the IMF. Meanwhile, negotiations between the government of Prime Minister Abdallah Hamdok and key outstanding creditors, such as Kuwait and Saudi Arabia, are set to commence in the coming weeks. While this will unlikely result in complete debt clearance, it could see frameworks developed to reach this point over the longer term – an alternative to immediate debt clearance. While it is uncertain when Sudan will reach the Completion Point, the debt arears clearing process with the World Bank, IMF and African Development Bank (AfDB) will nonetheless unlock various financing opportunities, particularly for developmental projects and budget support. Indeed, following the clearance of arrears with the World Bank and AfDB, Sudan was approved to receive a USD 207 million grant from the AfDB, USD 215 million in direct budget support, and USD 420 million for a family support programme from the World Bank. The finalisation of the bridge loan with the IMF could see further such disbursements over the medium term.



This support should assist Sudan in achieving its forecast economic rebound in 2021. After experiencing a GDP contraction of 3.6 percent in 2020 – on the back of recessionary conditions in 2018/2019 and the externalities of the coronavirus pandemic – the IMF has projected that Sudan will register a growth rate of 0.4 percent in 2021. This outlook is predicated on increased agriculture, mining and oil exports – amid a global commodity rally – and increased domestic consumption. Equally beneficial is the anticipated uptick in foreign direct investment following the United States’ 14 December 2020 decision to remove Sudan from the State Sponsors of Terrorism list. This, in addition to HIPC-related processes, should serve to bolster investor sentiment amid improving political stability. While Sudan continues to battle with crippling inflation levels (363 percent in April, year-on-year), the prioritisation of public spending and tighter monetary policies in the coming year should reduce inflation to 129.7 percent in 2021 and then to 57.5 percent by 2022, as per the AfDB.



The clearing of debt should complement the political transition processes. Prime Minister Hamdok announced in November 2020 that the country’s fiscal challenges are impeding the government’s ability to finalise the Transitional Legislative Assembly – which is set to prelude an election in 2022 or 2023 – and implement the political, security, social and economic tenets of the October 2020 peace accord. As per Hamdok, such costs amount to roughly USD 7 billion. The clearing of arrears by creditors – such as the Paris Club, World Bank, IMF and AfDB – and associated servicing costs should free up fiscal space for the transitional government to expedite these processes. Accordingly, the formation of the Transitional Legislative Assembly (with all tenets complete) may be accomplished within the final quarter of 2021 or the first quarter of 2022.

Signal Risk on Sudan – A sigh of relief

*This analysis was produced by the team at Signal Risk 



On 02 April, the International Monetary Fund (IMF) approved a joint three-year Extended Credit Facility (ECF) and Extended Fund Facility (EFF) for Kenya. Valued at USD 2.34 billion, the joint facility is intended to support the next phase of Kenya’s public health and economic response to the coronavirus pandemic and its externalities.



Given the apparent deficiencies in Kenya’s financial and structural conditions, both Kenya and the IMF have agreed on numerous reform-oriented conditionalities. These include broadening the tax base, freezing public sector recruitment, reassessing and restructuring state-owned enterprise debt, strengthening public and general financial regulation (including anti-corruption and anti-money laundering), and reviewing the statutory debt ceiling. In terms of specified targets, the government has committed to maintaining the deficit and debt-to-GDP ratios at 8.7 and 70.4 percent, respectively, in 2021.



Mixed reception



Reception of Kenya’s new programme has been mixed.



Of particular concern has been Kenya’s borrowing plans. As per the IMF, Kenya plans to borrow up to USD 12.4 billion from foreign sources between April 2021 and June 2022. This includes USD 7.3 billion in Eurobonds, USD 4.8 billion in concessional loans, and USD 282 million in semi-concessional loans. Roughly USD 2.3 billion of the acquired funds will be spent on infrastructure projects, and USD 5 billion will be allocated towards refinancing a Eurobond maturing in 2024 and other syndicated loans. All things being equal, the total borrowing over the 14-month period is forecast to amount to between 6 and 7 percent of GDP.



There are further concerns – as expressed in a petition to cancel the loan, signed by 160,000 citizens – that the latest IMF facility will prompt an increase in taxes for purposes of reducing the deficit. Of particular contention is the possibility of an upward adjustment of the VAT rate on fuel from the current 8 percent, to 16 percent. This, according to civilian, civil society and labour interests could accelerate the ongoing hike in the price of the commodity – which has prompted some Kenyans to resort to cheaper purchases from Tanzania and Uganda – and lead to a wage-price spiral that would negatively impact consumers and producers. A final concern by the general public relates to the potential for the IMF funds to be lost to corruption.



Rifts upon rifts



The administration of President Uhuru Kenyatta has yet to respond to the grievances surrounding the IMF programme. This is likely due to Kenyatta’s pre-occupation with the ongoing fallout with his deputy, William Ruto.



The dispute between Kenyatta and Ruto reached a crescendo in recent weeks, as the president intensified his efforts to weaken the deputy and his allies. First, on 12 February, Kenyatta openly castigated Ruto and insinuated that he should resign – the first such suggestion since the rift between the duo became clear roughly two years ago. Addressing a crowd in the capital, Nairobi, Kenyatta stated that “you can’t be speaking of the failures of a government where you serve while at the same time outlining what…we have achieved as a government. You better resign”. Although Kenyatta did not mention Ruto by name, it was clear given the fractious relationship between the president and his deputy that he was referring to Ruto. A day later, Ruto confirmed these suspicions when he stated in the town of Isiolo that he will not resign and that there is no contest between him and Kenyatta.



Days later, on 18 February, Kenyatta undertook a cabinet reshuffle that saw eight members of the opposition ODM of Raila Odinga appointed to executive positions. The new appointments primarily affect the positions of chief administrative secretary and principal secretary in multiple portfolios, including finance, labour, and trade. Previous occupants – many of whom were allied to Ruto – were demoted.



Ruto’s misfortunes were somewhat compounded by the performance of the UDA party – a new political entity established by his allies – during municipal by-elections that were held on 05 March. The pro-Ruto formation claimed a single seat from the available seven, despite rigorous campaigning by the deputy. The remaining six were shared by a plurality of parties including Jubilee, the ODM, ANC and Ford Kenya.



The Signal



Kenya’s uptake of an International Monetary Fund (IMF) programme is seen as pragmatic, and does not necessarily signal a tendency towards prudence. For one, IMF endorsement will likely ensure that Kenya acquires its planned USD 12.4 debt haul at relatively favourable terms. This, as noted, will be used to refinance more strenuous Eurobond and syndicated loans, and thereby ease the country’s repayment burden. Additionally, the availability of USD 2.34 billion in financing from the IMF should ease potential fiscal, balance of payments and general liquidity concerns. This includes potential funding gaps that may arise due to vaccine procurement and potential corrosion of foreign reserves due to a deteriorating trade balance. Furthermore, the availing of funds to finance President Kenyatta’s Big Four infrastructure agenda could win crucial political capital for the statesman and his allies if the projects are indeed delivered.



The Kenyatta administration will be selective in its choice of mechanisms to satisfy conditionalities associated with the joint facility, especially at such a politically sensitive period. A particular mechanism that the government will likely shy away from is an uptick in value-added tax (VAT) on fuel as a means to contain the deficit. In 2018, Kenyatta was reluctant to impose the full 16 percent VAT on fuel that was recommended at the time by the IMF, largely due to pressure from the political opposition, the public, and trade unions. Should Kenyatta gesture towards any such increase in VAT – especially at a time when public welfare has been corroded by coronavirus-related factors – it could trigger a wave of socio-economic unrest. There is also a risk that grievances associated with a VAT hike could be exploited by Kenyatta’s rivals ahead of the 2022 elections. Instead of an uptick in VAT, the Kenyatta administration may prioritise tax measures that have the lowest risk of socio-economic and political backlash, such as small levies on mobile transactions.



The absence of severe austerity should maintain the advantage held by Kenyatta and his allies in the ongoing political power play. Not only has the president consolidated his grip on governing institutions in Kenya by flushing out Deputy President Ruto’s allies, but the popularity that Kenyatta and his allies wield was affirmed by the recent by-election outcomes. Due to the fact that Ruto was voted in on the same ticket as Kenyatta, the president cannot unilaterally fire Ruto. Instead, his removal requires a formal impeachment process. Such a process is loosely ongoing, and is based on corruption allegations involving Ruto; however, it has yet to gain any significant traction, with no motion filed in parliament as yet. Should this be the case, it could trigger countrywide anti-government demonstrations by Ruto allies and a push within government to obstruct such a motion.

Signal Risk on Kenya – Funds and factionalism

*This analysis was produced by the team at Signal Risk 



On 18 March, the National Assembly opened debate over a series of constitutional amendments. The Constitutional Review Proposal under parliamentary consideration contains 40 proposed modifications. It is the first revision of Angola’s legal framework since the current constitution was adopted in 2010.



Reforms and revisions



The ruling MPLA party has presented the amendments as part of the current administration’s much vaunted reform agenda, implemented after President Joao Lourenco replaced Jose Eduardo dos Santos as head of state and MPLA leader in 2017.



The bulk of the suggested constitutional modifications are, in fact, largely uncontroversial. Many proposed alterations – including changes that would cement the independence of the central bank and enhance parliamentary oversight of the executive –&nbsp;appear to have support within the MPLA and opposition UNITA and CASA-CE parties. Other amendments – such as those extending voting rights to Angolans in the diaspora –&nbsp;have long been called for by opposition parties.



An exercise in cosmetics?



Nonetheless, the constitutional review has drawn substantial criticism from opposition and civil society groups. Most notably, the opposition argues that the proposed changes to the country’s judicial framework are not extensive enough. Specifically, critics claim that the incremental legal reforms do not alter the unrivalled authority wielded by the president and the MPLA. Among the more fundamental changes called for by the opposition is a revision to the current format of general elections (in which the president is not directly elected, but appointed by the party that secures the most votes in the legislature).



A civil society group calling itself the “Youth for Municipalities Movement” expressed similarly critical sentiments about Angola’s electoral system at a Luanda press conference on 17 March. The group called on the Lourenco administration to commit to holding the frequently delayed municipal elections in 2021. The municipal ballot – which is a key pillar of the move towards decentralising political power in Angola –&nbsp;had been scheduled for the latter half of 2020, but was postponed in September of that year due to the domestic coronavirus outbreak. Authorities have yet to reschedule the vote, leading opposition groups to accuse the MPLA of deliberately delaying the election in order to maintain the ruling party’s dominant position at all levels of government.



Another prominent criticism levelled against the proposed constitutional alterations relates to the top-down nature of the review process. Specifically, civic organisations have been highly critical of the fact that the amendments were formulated by cabinet without a formal consultation process.



The Signal



On the whole, the constitutional amendments put forward by the Lourenco administration represent a positive development for Angola’s democratic system. The majority of the proposed edits have support across the political spectrum and are generally expected to strengthen the country’s governance structure.



However, as pointed out by UNITA, the selective and incremental nature of the suggested changes does serve a particular political logic for the MPLA. Namely, the ruling party is attempting to bolster its reformist image, while ensuring that it retains its dominant position in the executive and legislature. UNITA is expected to boycott the final vote of the constitutional review process, just as it did with the initial parliamentary vote, but the MPLA should still successfully pass the review bill into law, due to its legislative majority and the support of smaller opposition parties.



Opposition and civil society groups are likely to continue to push for broader democratic reforms. Foremost among these are municipal elections, which have not been specifically provided for in the draft constitutional reforms. The most concrete allowance made in this regard was to abandon the MPLA’s previous commitment to the principle of “gradualism”, by which preparations for municipal elections would be done incrementally over a period ending in 2035. Aside from this, no further effort has been made to provide a date on which the polls may be held or to resolve issues relating to the legal standing and administrative structure of the municipalities.



While the opposition is likely to push for the local elections to be held in the current year, the MPLA may attempt to push them further out and hold the polls alongside the general elections scheduled for 2022. Although this is likely to become a point of contention among opposition parties, it is unlikely to affect overall political stability due to the MPLA’s dominant political position.



Meanwhile, the application of Lourenco’s more extensive reform agenda is likely to be selective ahead of the 2022 national elections. Although an exact date has yet to be set, the national polls are likely to take place in August 2022. Both the ruling and opposition parties will have begun to strategise for the upcoming ballot.



Following the expected passage of the constitutional reform bill through parliament, the Lourenco administration is not expected to pursue other major reforms ahead of the vote. The government will, however, continue with existing reform efforts that it deems politically advantageous.



To this end, Lourenco is expected to prioritise anti-corruption investigations into loyalists of the former dos Santos regime, and remain reluctant to pursue corruption allegations levelled at his supporters and political allies. Notably, Lourenco’s anti-corruption drive is not purely partisan; there is substantial evidence and multiple active cases which suggest that the graft perpetrated by dos Santos and his inner circle was extensive.

texture-sackcloth-with-image-angola-flag_158023-1119

Signal Risk on Angola – Changes to the charter

The health ministry confirmed on 24 March that Burundi’s active coronavirus caseload stood at 1,878 – the highest since the outbreak began in March 2020. Unlike continental peers, which have been experiencing second and third waves of infection in recent months, the current spike in case numbers is technically Burundi’s first. Indeed, official active infections did not exceed 120 during 2020.



Questionable response



While the case increase has been attributed to the government’s efforts to bolster testing capabilities, Burundi still ranks poorly in this metric, with 7,412 tests conducted per million people – one of the lowest on the continent. This, despite testing centres having been established in most provincial urban centres since October 2020. Accordingly, Burundi’s low testing rate can be attributed to the public’s dismissal of the virus, largely as a result of deceased former president&nbsp;<a href="https://www.thesignalroom.com/burundi-passing-on-1553215165-581486560-1519584763/">Pierre Nkurunziza</a>&nbsp;downplaying the domestic outbreak. When&nbsp;<a href="https://www.thesignalroom.com/burundi-the-ascent-of-evariste-1265992196/">President Evariste Ndayishimiye</a>&nbsp;assumed office in June 2020, he largely sustained his predecessor’s rhetoric and disposition towards the virus.



In addition to its dismissive position, the government has failed to implement robust containment regulations. The only restrictions currently in place are the mandatory wearing of a face mask on public transport, the prohibition of public entertainment facilities (such as nightclubs), and the closure of the country’s land borders. Flights to and from Bujumbura International Airport are permitted, but all incoming passengers are required to present a negative PCR test no older than 72 hours and quarantine at a state facility for seven days prior to being tested again.



Polite refusal



The most striking position of the government is its refusal to make use of any coronavirus vaccine, at least for now. Health minister Thaddee Ndikumana indicated in early February that Burundi does not need the vaccine at this time. According to Ndikumana, prevention remains more important than inoculation given that Burundi has a 95 percent recovery rate, and that the country can control the outbreak at present. Ndikumana did allude to the idea that the government would accept the vaccine should it be deemed necessary, but Burundi has yet to formally register with the World Health Organization’s (WHO) COVAX access facility, nor have engagements with manufacturers taken place.



Strengthening ties



Burundi’s refusal to inoculate its population at this time has yet to bring about any notable external criticism, least of all from regional peers, with which the Ndayishimiye government continues to foster increasingly favourable economic, security and diplomatic arrangements. This, following Burundi’s historic isolationism under the tenure of Pierre Nkurunziza.



From Kigali, with love



Foremost among such diplomatic efforts are recent bilateral engagements that indicate improving relations between Rwanda and Burundi since foreign minister Albert Shingiro met his Rwandan counterpart, Vincent Biruta, in October 2020. The meeting marked the first notable attempt to normalise bilateral ties, which have deteriorated in recent years following accusations by Nkurunziza that Rwanda was backing rebel groups to overthrow his administration.



The most significant developments pertaining to the former adversaries have occurred on the economic and security fronts. In terms of the former, reports on 25 February indicated that the governments of Rwanda and Burundi had begun mobilising revenue for the creation of the Akanyaru Multipurpose Dam. Facilities related to the project will cost roughly USD 190 million in total. The reservoir is intended to supply drinking water to 614,200 people in Burundi and Rwanda, and to provide water for the irrigation of 12,474 hectares of agricultural land. Over the longer term, a hydroelectric station will be established at the dam, which is expected to provide electricity for 846,000 people in both countries.



On the security side, Burundian and Rwandan military officials held a meeting at the Bweyeye immigration office in the Mabayi commune of Cibitoke province in mid-March. The dialogue centred on the establishment of an information-sharing framework to bolster cooperation in securing the common frontier.



An old friend



In another strategic bilateral development, reports on 16 February indicated that Tanzanian and Burundian authorities are seeking USD 1.9 billion in funding for a railway project linking the two countries. Funding is being specifically sought for a 190-kilometre rail connection linking the Tanzanian town of Isaka (Shinyanga region) to the Burundian town of Musongati (Rutana province). The connection – and access to the Tanzanian ports – is integral to Burundi’s plans to expand its mining revenue by as much as 47 percent by 2027, which is contingent on the export capacity offered by Tanzanian infrastructure.



Continental wanderlust



Ndayishimiye has also sought to branch out of the East and Central African region.



The president arrived in Equatorial Guinea on 02 November 2020 for a five-day diplomatic visit. He held various meetings with his counterpart, Teodoro Obiang Nguema, to discuss ways to strengthen economic and political ties between the two countries. Crucially, this marked the first time that a Burundian head of state departed the country for more than 24 hours since the&nbsp;<a href="https://www.thesignalroom.com/burundi-a-simmering-political-crisis/">political crisis in 2015</a>.



Then, on 23 March, Ndayishimiye arrived in Egypt for a four-day diplomatic visit, which saw the ratification of agreements relating to tourism, education, culture and communication, as well as the approval of visa exemptions for diplomatic and service passports.



Lifting the veil



The Ndayishimiye government’s diplomatic gains have gone beyond Africa.



In one of the more significant recent gains, the International Organisation of la Francophonie (OIF) on 04 November 2020 ratified Burundi’s full re-entry into the body after placing sanctions against the country in 2016. Following Burundi’s political crisis in 2015, the OIF accused the government of committing myriad human rights abuses, which led to its removal from the multilateral organisation. This resulted in diminished trade and economic cooperation between the 88 OIF members and Burundi. As per the OIF, the decision to resume its relationship with the country followed a formal request by President Ndayishimiye to lift the sanctions to allow for increased multilateral economic support.



More recently, foreign affairs minister Albert Shingiro and several ambassadors of European Union (EU) member countries engaged in diplomatic dialogue on 02 February. This followed the EU’s December 2020 decision to restore diplomatic ties with Burundi after they were suspended for nearly five years. In 2016, the EU suspended political engagement and withheld direct budgetary support to the Burundian government following allegations of human rights abuses committed in 2015. The February round of dialogue concluded with the EU agreeing to resume support for Burundi under the Cotonou Agreement – an overarching framework for EU relations with African, Caribbean, and Pacific (ACP) countries. Participating governments receive support in various areas such as investment, economic development, climate change, poverty eradication, peace and security.



Old guard



That said, just four days later, dozens of EU parliamentarians requested that the ongoing sanctions against Burundi (separate to Burundi’s removal of the Cotonou Agreement) remain in place. In justifying their decision, members of the EU legislature accused the Ndayishimiye administration of <a href="https://www.thesignalroom.com/burundi-mandated-violence-1726441406/">myriad human rights</a> abuses since coming into power.



Indeed, the country’s socio-political environment continues to be defined by violent attacks against the political opposition, and arbitrary arrests. This largely stems from the retention of numerous senior military and state officials from the Nkurunziza administration. Most recently, during a party conference on 24 January, Reverien Ndikuriyo was selected as secretary-general of the ruling CNDD-FDD. The position was previously held by President Ndayishimiye – even after assuming presidential office in June 2020 – who on the same day was elected as chairman of the Council of Elders. Ndikuriyo is considered a political hardliner, whose rhetoric has historically been antagonistic towards the country’s opposition.



The incumbent government’s hostile position towards the opposition is reflected in the fact that over 180 opposition CNL members are currently in prison facilities across the country, with most having been apprehended in the build-up to (and following) the country’s&nbsp;<a href="https://www.thesignalroom.com/burundi-votes-viruses-and-vendettas-266765171/">20 May 2020 general elections</a>. Incidentally, President Ndayishimiye pardoned as many as 5,255 prisoners on 08 March, but all political prisoners – including non-combatants – were excluded. Rather, those with five-year sentences or those with corruption-related offences were released.



Clearing the forest



The government’s fostering of a repressive socio-political environment continues to motivate a low-level insurgency by armed anti-government groups, particularly in Cibitoke province.



Clashes between Burundi National Defence Force (FDNB) personnel and armed militants have continued into 2021, after military officials announced in November 2020 that they aim to “remove all armed elements” in Kibira forest, located in the Mabayi commune of Cibitoke. While armed exchanges have generally remained isolated to the forest, indiscriminate clashes have been reported near more populated areas. Most recently, it appears that state forces have gained the upper hand, with scores of rebels surrendering during the first week of March.



The Signal



Burundi is assessed as being highly vulnerable to a protracted and significant coronavirus outbreak.&nbsp;While there has been a marginal shift in rhetoric in recent weeks by the administration of President Ndayishimiye (such as calling on civilians to get tested regularly), the government continues to downplay the virus’ severity. Accordingly, the public is unlikely to heed these demands, which will continue to deflect from the true extent of Burundi’s outbreak. More concerning is that Burundi is not formally registered with the COVAX global vaccine access facility, which will stall any inoculation effort, should it come under consideration; this in turn could have protracted economic and public health ramifications.



While Burundi is forecast to experience an economic rebound in 2021, there are several downside risks.&nbsp;Following a contraction of 3.2 percent in 2020, the International Monetary Fund (IMF) projects that Burundi will see growth of 3.1 percent in 2021. This forecast is marginally lower than that of the African Development Bank (AfDB), which projects a growth rate of 3.5 percent and then 2.1 percent in 2022. Inflation is also anticipated to decline to 5.4 percent in 2021 from 7.6 percent in 2020. Elsewhere, following measures to increase tax revenue in the 2020/21 Finance Law, and the prospect of a drop in current spending, the overall budget deficit is expected to decrease to 7.9 percent of GDP in 2021 from 8.7 percent in 2020. However, public debt is projected to increase from the 65 percent registered in 2020 to 68.9 percent in 2021. Simultaneously, the current account will continue to run a large deficit, due to the pressure on prices of agricultural raw materials and the revival of imports linked to the economic recovery. These projections face several downside risks, such as any climate-related disruptions to the country’s mainstay coffee and tea sector, a decrease in remittance inflows, and disruptions to economic activity as a result of a protracted coronavirus outbreak. Moreover, given the limited size of Burundi’s formal sector, there are also risks to achieving the touted tax revenue increase. Equally, the decision by the government to not use coronavirus vaccines may exacerbate the already poor investor sentiment that is dampened by regulatory overreach and the state’s poor human rights record.



Repairing and fostering diplomatic relations will remain a policy priority for the Ndayishimiye administration.&nbsp;The government is expected to continue its pursuit of economically beneficial arrangements, predominantly with continental peers. This will be crucial to Burundi’s longer-term economic development, which stagnated under the isolationist regime of Pierre Nkurunziza. In undertaking this objective, Burundi should see an increase in continental trade, additional bilateral development or infrastructure projects, an associated increase in foreign currency, and greater technical support from regional or continental bodies. In the medium term, Burundi’s re-entry into the OIF and Cotonou Agreement should afford greater access to fiscal support channels, which remain largely limited given the country’s high risk of debt distress.



Western partners will remain reluctant to resume direct budget support amid sustained human rights abuses by the government.&nbsp;Until such a time as the United Nations Human Rights Council’s (OHCHR) Commission of Inquiry on Burundi reports that the Ndayishimiye administration has undertaken changes to reduce the prevalence of such abuses, the European Union (EU) will likely retain its current stance. However, a shift in the government’s repressive rule is not anticipated at this time, given that Burundi continues to make positive strides in repairing continental relations and boosting economic cooperation with salient peers (such as Tanzania). Reinforcing this assessment is the ascent of hardliners from the Nkurunziza regime in the current government. Accordingly, Burundi’s socio-political environment will continue to be characterised by the violent persecution of the political opposition, and arbitrary arrests of journalists and civic activists.



The low-level insurgency in Cibitoke province will continue to pose a localised security threat over the medium term.&nbsp;Despite the recent successes, the military has yet to make notable progress in its touted goal of “removing all armed elements” from Kibira forest. This assessment is predicated on the fact that weekly armed exchanges have been reported by local residents – predominantly in the Mabayi commune – since November 2020. Given the relatively limited public information on the conflict, it also remains unclear to what degree the military has incurred any casualties, with local sources reporting the indiscriminate discovery of dead soldiers near the forest. The geographic scope of the conflict is not expected to shift at this time, although areas surrounding Kibira forest will remain at risk of a potential spillover.

BURUNDI-HEALTH-VIRUS

Burundi – Not enough

*This analysis was produced by the team at Signal Risk&nbsp;



“This will be the government of all Libyans… Libya is one and united.”



These were the crowning words of Prime Minister Abdulhamid Dbeibeh’s inaugural address as he and his government of national unity (GNU) were sworn into power in Tobruk on 15 March. The inauguration concluded the first part of Libya’s United Nations (UN)-led transitional process, which began in October 2020 with the signing of a ceasefire agreement between the formerly adversarial Tripoli- and Tobruk- based governments.



The structure



The GNU is composed of four structures: a three-member presidential council, a three-member prime ministerial office, 26 cabinet ministers, and six ministers of state. In keeping with the principles of the UN-led transition, different geographic regions and interest groups are represented in the GNU with a view to creating a balanced and stable power-sharing formula. This includes natives from each of the historic Tripolitania, Fezzan and Cyrenaica regions, tribal leaders, and those from the commercial, legal and military fraternities.



The GNU’s mandate is simple: to stabilise and <a href="https://www.thesignalroom.com/libya-platitudes-in-palermo/">prepare Libya for general elections</a>&nbsp;that have been scheduled for December 2021. After this, the structure will be dissolved and a permanent administration will come into power.



The dominant formations



Pre-eminent among the GNU’s structures are the prime ministerial and presidential councils, which will jointly spearhead governance in Libya and perform mutual checks and balances. The prime ministerial council is headed up by Dbeibeh – whose seat will remain in Tripoli, in the west of Libya – alongside two deputies “overseeing” two geographic demarcations: Hussein Atiya Abdul Hafeez Al-Qatrani (who is deputy prime minister for east Libya) and Ramadan Ahmed Boujenah (who is deputy prime minister for south Libya).



The three-member presidential council is led by chairman Mohamed Yunus al-Menfi, who will also serve as the representative for Cyrenaica. He is joined by two vice chairmen, Abdullah al-Lafi (who is the representative for Tripolitania region) and Musa al-Koni (who is the representative for Fezzan).



The transition



Dbeibeh and his government’s ascent to power was somewhat smoother than expected.



After <a href="https://www.thesignalroom.com/libya-spoiling-the-broth-1610382589/">the ceasefire agreement in October 2020</a> – which was arguably preserved by factors such as a stalemate between warring sides, conflict fatigue, and increased international engagement – the UN seized the opportunity to expedite the transitional process.



Led by acting Libya envoy Stephanie Williams, and drawing on the roadmap put forward by&nbsp;<a href="https://www.thesignalroom.com/libya-the-flammable-ceasefire-625374214/">the Berlin conference in January 2020</a>, the UN began formalising the Libyan Political Dialogue Forum (LPDF). The 74-member body, which was also composed of a diverse array of Libyan stakeholders, was established in 2019 to guide the country through a potential transitional process; however, its formalisation was stalled due to a resurgence of conflict.



In February, the LPDF gathered in Geneva to elect the heads of a potential unity government. Specifically, in this exercise, leaders from the Tripoli-based Government of National Accord (GNA) and Tobruk-based House of Representatives (HoR) were tasked with presenting a candidate list that comprised a prime minister and members of the presidential council; the LPDF would then vote on the list (and in effect, the leaders of Libya’s transition).



A total of four lists was presented to the LPDF. Most notable among these was that comprised of HoR speaker Aguila Saleh (who was running for head of the presidential council) and GNA Interior Minister Fathi Bashagha (who was running for the prime ministerial seat). Given their prominence, the Saleh- Bashagha union was thought to be undefeatable, especially by the Dbeibeh-Menfi ticket which lacked the familiarity and influence of its rivals.



This appeared to be the case in the first round of voting, as the Saleh-Bashagha ticket claimed an indecisive victory (less than 50 percent or 37 votes); second was Dbeibeh and Menfi. However, in a surprising turn, the Dbeibeh-Menfi ticket claimed 39 votes in the second-round poll, and with that, leadership of Libya’s transition.



Immediately after the vote, there were loose allegations of vote buying by Dbeibeh and Menfi; however, these remain unsubstantiated and were not acted upon.



The pledge and the buy-in



Following the Geneva vote, Dbeibeh made several key promises, in the hope of expediting Libya’s break from its tumultuous past. These include:



<ul><li>Electing a competent government that represents all constituencies</li><li>Reforming state institutions</li><li>Resurrecting the economy and improving service delivery</li><li>Fostering peace and stability</li><li>Combatting corruption</li><li>Centralising the country’s security apparatus (including the departure of foreign militias and the demobilisation, disarmament, and reintegration of local forces)</li></ul>



Unsurprisingly, his cabinet selections were partly aimed at fulfilling these ends, with fresh faces deployed to all government portfolios. This includes the ministries of finance, interior, foreign affairs, economy and trade, industry and minerals, and oil and gas. Tellingly, the country’s contested defence portfolio – which was long sought by HoR-aligned warlord Khalifa Haftar – was not handed to a single individual. Instead, it will be jointly held by members of the country’s presidential council.



Despite the upset, Haftar is among many domestic and international stakeholders to have lauded Dbeibeh and his new formation. In a statement following the inauguration, Haftar expressed “the support of the armed forces for the peace process”. Dbeibeh’s predecessor, Fayez al-Sarraj, also honoured his commitment to hand over power peacefully to the incoming prime minister. Furthermore, Dbeibeh’s candidate picks were endorsed by 132 of the 133 members of the HoR that were present at confidence sessions in Tobruk during the week of 08 March.



Just as important, Dbeibeh and his government have received a stamp of approval from <a href="https://www.thesignalroom.com/libya-the-thin-red-line-1617726443/">Libya’s external partners</a>, which were informally divided between supporters of the GNA and HoR. Since 15 March, Italy, the United Arab Emirates, Egypt, Russia and France have all pledged their support for the prime minister, his new government, and the transitional process.



The Signal



Abdulhamid Dbeibeh’s ascent to power is seen as the outcome of exasperation with the political status quo, and the desire among Libyans for a consensus candidate who could unite the country’s myriad factions. Indeed, Dbeibeh’s rivals – Saleh and Bashagha – were arguably seen as remnants of old and failed regimes (in the form of the HoR and GNA). The two statesmen also had strong ties to limited interest groups, which could prove to be an impediment in a transitional administration. Saleh was seen as an exponent of general Haftar, Egypt, Russia and the United Arab Emirates. His historic support for the general has been a particular point of contention and has resulted in serious criticism from populations that have been negatively impacted by <a href="https://www.thesignalroom.com/libya-haftars-tripoli-advance/">the general’s military campaign.</a> In keeping with his GNA stead, Bashagha is strongly aligned with Turkey, Italy and Qatar. However, his reputation as an unscrupulously ambitious politician who is willing to court all sides to advance his interests has also resulted in some disaffection among sections of the Libyan polity.



Positively, Dbeibeh has demonstrated the political expertise to navigate a complicated Libyan landscape. A businessman by profession, the new prime minister is said to curry favour from most sides of the Libyan polity and the country’s divided international partners. Hailing from Misrata, he has firm ties with one of the strongest tribal groups in Libya, which has historically propped up the GNA. Furthermore, although controversial, his ascendance under former ruler Muammar Gaddafi has also allowed him to establish links with the HoR, much of which consists of supporters of the deceased dictator. Testament to Dbeibeh’s political nous are his cabinet picks. The prime minister has temporarily eased concerns over political bias with a representative and technocratic cabinet. Furthermore, in opting to centralise the defence portfolio, he has outmanoeuvred Haftar in a manner that avoided upsetting the general and other rival armed interests.



Some semblance of political stability is likely to endure until elections are held in December. It appears as if all internal and external stakeholders are on board with the transitional process and the upcoming election, with very few incentives to spoil the process. This may be rooted in the fact that the GNU must dissolve ahead of the ballot; although it is unclear if Dbeibeh and members of his government can compete in the upcoming election and therefore wield the power of incumbency. Regardless, the likes of Saleh, Bashagha – and indeed, Haftar – could make a claim for power in December, in what could amount to a more legitimate administration with a longer stay in office and a less restricted framework. Accordingly, relative calm is expected in the political realm unless Dbeibeh makes any unexpected moves to unsettle powerful stakeholders. These could include the prosecution of an individual such as Haftar. Nonetheless, closer to the election, increased political competition could have a destabilising impact.



Improving the country’s security environment will remain a challenge and require strong assistance from international allies. While the centralisation of the broad security apparatus is a key step towards mitigating the country’s myriad security threats, Dbeibeh’s GNU does not have the military and financial means – or authority – to bring the armed actors under its rule. For one, the GNU has inherited no army, and governing institutions remain relatively bankrupt. Second, <a href="https://www.thesignalroom.com/libya-tumult-in-tripoli/">militants aligned with the GNA</a> – including those from Misrata and Tripoli – did so largely out of self-interest and self-preservation as opposed to concrete allegiance to the governing structure. Similarly, Haftar’s self-styled Libya National Army (LNA) is also ostensibly aligned with his personality as opposed to the HoR, to which Haftar loosely belongs. As such, the GNA and HoR’s “surrender” to Dbeibeh does not necessarily guarantee the fidelity of its militant backers. Furthermore, any move that poses an existential threat to such groups – such as a proposed disarmament, demobilisation and reintegration (DDR) campaign – could prompt a backlash, especially in the absence of the threat of coercion, or incentives from the GNU. To circumvent this, international allies will need to add concrete pressure on militant actors (and their leaders) to participate in the DDR and avoid disruptive tendencies, especially close to the December elections.



Economic growth is possible in Libya in the coming year.&nbsp;<a href="https://www.thesignalroom.com/libya-a-crude-conundrum/">Relatively sustained oil production</a> during late 2020 has significantly boosted a Libyan economy that was severely impacted by a lengthy force majeure and coronavirus-induced shocks in 2020. Indeed, the halt to oil production resulted in financial losses of more than USD 9 billion in 2020. This, along with demand and supply pressures linked to the coronavirus pandemic, led to a 58.7 percent GDP contraction according to the International Monetary Fund (IMF). In a marked change in fortunes, the IMF has forecast growth of 76 percent in the current year, principally led by the commodity market rally, although this is in the context of a markedly low growth base. Nonetheless, growth should stabilise Libya’s deficit and debt metrics. Furthermore, should the transitional process proceed as planned, the country could benefit from expanded development assistance from external partners. However, any flare-up in conflict could see the force majeure reinstated, production halted, and the possibility of comprehensive donor assistance reduced.

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